Honda and Nissan are reportedly in merger talks to compete with Tesla, the Chinese language EV rival

Honda and Nissan, Japan's second and third largest automakers, are reportedly in merger talks to create a structure that would allow them to better withstand tough competition from Tesla and Chinese rivals in the electric vehicle (EV) space.

Nikkei news agency initially reported that the two companies were in merger talks to clarify how they could work more closely together in the technology sector. According to Reuters, the talks are aimed at establishing an umbrella holding company and not necessarily a merger of the two companies.

Mitsubishi, in which Nissan has a 24% stake, is also considered part of the partnership.

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What is certain is that the two automakers have intensified their collaboration in recent months to find a common strategy for dealing with the rapidly changing electric vehicle landscape.

Both Honda and Nissan have each issued a statement confirming this. “As announced in March of this year, Honda and Nissan are exploring various opportunities for future collaboration, leveraging each other's strengths,” the statement said.

Analysts say Honda's strengths in powertrain development, particularly for hybrids, could be combined with Nissan's experience in electric vehicles, dating back to the LEAF in 2010.

The focus of the two automakers' partnership is on electric vehicle technology, including components and software.

What began as an alliance to counter intense price competition from companies like China's BYD grew more intense over the year as the global auto industry also saw declining sales in Europe and the United States

Additionally, the industry now faces the potential reversal of pro-EV policy in the US as President-elect Donald Trump takes office.

The merger could also come under scrutiny from the Trump administration, which has taken an aggressive stance on imported vehicles, including threatening to impose high tariffs.

A merger of Honda and Nissan would create one of the largest automobile companies in the world with total sales of about 8 million.